SUMMARY: The FDIC is seeking comment on specific issues related to
industrial loan companies and industrial banks (collectively, ILCs),
including issues regarding the current legal and business framework of ILCs
and the possible benefits, detrimental effects, risks, and supervisory
issues associated with the ILC industry. The FDIC believes that public input
will assist the FDIC in identifying any potential risks to the Deposit
Insurance Fund, any emerging safety and soundness issues, or other policy
issues raised by ILCs and, further, will assist the FDIC in determining
whether statutory, regulatory, or policy changes should be made in the
FDICís supervision of ILCs in order to protect the Deposit Insurance Fund or
other important Congressional objectives.

DATES: Written comments must be received on or before [INSERT DATE THAT
IS 45 DAYS AFTER DATE OF PUBLICATION].

Recently, the growth of the ILC industry, the trend toward commercial
company ownership of ILCs and the nature of some ILC business models have
raised questions about the risks posed by ILCs to the Deposit Insurance
Fund, including whether their commercial relationships pose any safety and
soundness risks. On July 28, 2006 the FDIC imposed a six-month moratorium on
FDIC action to (i) accept, approve, or deny any application for deposit
insurance submitted to the FDIC by, or on behalf of, an ILC, or (ii) accept,
disapprove, or issue a letter of intent not to disapprove, any change in
bank control notice submitted to the FDIC with respect to an ILC. The
purpose of the moratorium is to preserve the status quo while the FDIC
evaluates (i) industry developments, (ii) the various issues, facts, and
arguments raised with respect to the ILC industry, (iii) whether ILCs pose
any increased risk to the Deposit Insurance Fund, or whether there are
emerging safety and soundness issues or policy issues involving ILCs, and
(iv) whether statutory, regulatory, or policy changes should be made in the
FDICís oversight of ILCs in order to protect the Deposit Insurance Fund or
important Congressional objectives. A notice of the imposition of the
moratorium was published in the Federal Register on August 1, 2006 (71 FR
43482, August 1, 2006). The notice expressed the FDICís intent to seek
public input on the issues and concerns raised with regard to the ILC
industry.

ILCs were first chartered in the early 1900's as small loan companies for
industrial workers. ILCs are state-chartered banks supervised by their
chartering states and the FDIC, which is their primary federal regulator.
ILCs were first insured on January 1, 1934. As of March 31, 2006, 61 insured
ILCs operating from California, Colorado, Hawaii, Indiana, Minnesota,
Nevada, and Utah reported total assets approximating $155 billion.

Under current law, certain ILCs may affiliate with, or be owned by, a
company whose activities are generally considered to be commercial in
nature. This ability of certain ILCs to be owned by or affiliated with
commercial entities results from the Competitive Equality Banking Act of
1987 (CEBA). The CEBA generally exempts from the definition of ďbankĒ in the
Bank Holding Company Act (BHCA) any ILC that meets certain requirements. As
a result, the parent companies of ILCs that qualify for the exemption under
the BHCA, unlike companies that are subject to the BHCA, are not prohibited
from engaging in commercial activities, and are not required to be
supervised by the Federal Reserve Board (FRB) and may not be subject to any
other form of consolidated supervision. Nevertheless, the majority of
companies that own ILCs are financial entities. Eleven are under some form
of consolidated supervision by either the FRB or the Office of Thrift
Supervision (OTS). OTS-supervised holding companies currently control
approximately 65% of the total ILC assets nationwide. Many other companies
that own ILCs are subject to primary supervision by state or federal
regulators.

Since ILCs are insured state nonmember banks, they are subject to FDIC
Rules and Regulations, restrictions under the Federal Reserve Act governing
transactions with affiliates and anti-tying provisions of the Bank Holding
Company Act, various consumer protection laws and regulations, and the
Community Reinvestment Act. ILCs are also subject to regular examinations,
including examinations focusing on safety and soundness, consumer
protection, community reinvestment, information technology and trust
activities.

FDIC supervisory policies regarding an institution, including an ILC
owned by a parent company, consider the organizational relationships of the
institution. The FDIC has the authority to examine an ILCís relationships
with its parent company and any other affiliate. Also, the FDICís
enforcement authority extends beyond the ILC itself and includes
institution-affiliated parties. This includes the authority to require such
action as the agency determines to be appropriate, which may include
divestiture of the ILC. However, since the FDIC is not a consolidated
supervisor, it does not have the authority to examine affiliates that do not
have a relationship with the ILC or to impose capital requirements on the
parent company of an ILC.

The FDIC generally follows the same review process for ILC applications
and notices as it does for such filings from other applicants. In the case
of applications for deposit insurance, the FDIC has the authority to impose
reasonable conditions through its order approving the application. In the
case of a change in bank control filed with the FDIC, the FDIC can impose
requirements and restrictions through a formal agreement among the FDIC, the
institution and the parent company. Decisions regarding specific conditions
or provisions are based upon the totality of the filing and investigation,
and may consider the complexity and perceived risk of the proposal, adequacy
of capital and management, relationships with affiliated entities, and
sufficiency of risk management programs, among other considerations.
Conditions or provisions may be time-specific or may impose continuing
requirements or restrictions that must be satisfied on an ongoing basis.
Conditions may be modified or discarded at the request of the institution or
at the FDICís own initiative if circumstances change in the future.

Concerns Expressed Regarding ILCs

A variety of concerns have been raised regarding ILCs. These primarily
focus on whether ILCs in a holding company structure that is not subject to
some form of consolidated supervision pose greater safety and soundness
issues or risks to the Deposit Insurance Fund than do insured depository
institutions in a holding company structure which is subject to consolidated
Federal supervision. These concerns include the absence of consolidated
supervisory requirements for the parent companies of ILCs; the absence of an
obligation by the ILC parent company to keep the ILC well capitalized; and
differences in authority to examine affiliate relationships. General
concerns have also been raised about the potential mixing of banking and
commerce that might be presented by an ILC.

II. QUESTIONS POSED BY THE FDIC

In imposing the six-month moratorium on actions relative to applications
for deposit insurance and notices of change in bank control, the FDIC
indicated its intent to evaluate (i) industry developments; (ii) the various
facts, issues, and arguments raised with respect to the ILC industry; (iii)
whether there are emerging safety and soundness issues or other risks to the
Deposit Insurance Fund or other policy issues involving ILCs; and (iv)
whether statutory, regulatory, or policy changes should be made in the
FDICís oversight of ILCs in order to protect the Deposit Insurance Fund or
other important Congressional objectives. The FDIC believes that public
participation will provide valuable insight into the issues presented by
recent trends and changes in the ILC industry, and will assist the FDIC in
deciding how to respond to those issues. In order to obtain public input,
the FDIC invites comments in response to the following questions. To aid our
analysis, we encourage commenters to identify, by number, the question to
which each section of their comment corresponds.

1. Have developments in the ILC industry in recent years altered the
relative risk profile of ILCs compared to other insured depository
institutions? What specific effects have there been on the ILC industry,
safety and soundness, risks to the Deposit Insurance Fund, and other insured
depository institutions? What modifications, if any, to its supervisory
programs or regulations should the FDIC consider in light of the evolution
of the ILC industry?

2. Do the risks posed by ILCs to safety and soundness or to the Deposit
Insurance Fund differ based upon whether the owner is a financial entity or
a commercial entity? If so, how and why? Should the FDIC apply its
supervisory or regulatory authority differently based upon whether the owner
is a financial entity or a commercial entity? If so, how should the FDIC
determine when an entity is ďfinancialĒ and in what way should it apply its
authority differently?

3. Do the risks posed by ILCs to safety and soundness or to the Deposit
Insurance Fund differ based on whether the owner is subject to some form of
consolidated Federal supervision? If so, how and why? Should the FDIC assess
differently the potential risks associated with ILCs owned by companies that
(i) are subject to some form of consolidated Federal supervision, (ii) are
financial in nature but not currently subject to some form of consolidated
Federal supervision, or (iii) cannot qualify for some form of consolidated
Federal supervision? How and why should the consideration of these factors
be affected?

4. What features or aspects of a parent of an ILC (not already discussed
in Questions 2 and 3) should affect the FDICís evaluation of applications
for deposit insurance or other notices or applications? What would be the
basis for the FDIC to consider those features or aspects?

5. The FDIC must consider certain statutory factors when evaluating an
application for deposit insurance (see 12 U.S.C. 1816), and certain largely
similar statutory factors when evaluating a change in control notice (see 12
U.S.C. 1817(j)(7)). Are these the only factors FDIC may consider in making
such evaluations? Should the consideration of these factors be affected
based on the nature of the ILCís proposed owner? Where an ILC is to be owned
by a company that is not subject to some form of consolidated Federal
supervision, how would the consideration of these factors be affected?

6. Should the FDIC routinely place certain restrictions or requirements
on all or certain categories of ILCs that would not necessarily be imposed
on other institutions (for example, on the institutionís growth, ability to
establish branches and other offices, ability to implement changes in the
business plan, or capital maintenance obligations)? If so, which
restrictions or requirements should be imposed and why? Should the FDIC
routinely place different restrictions or requirements on ILCs based on
whether they are owned by commercial companies or companies not subject to
some form of consolidated Federal supervision? If such conditions are
believed appropriate, should the FDIC seek to establish the underlying
requirements and restrictions through a regulation rather than relying upon
conditions imposed in the order approving deposit insurance?

7. Can there be conditions or regulations imposed on deposit insurance
applications or changes of control of ILCs that are adequate to protect an
ILC from any risks to safety and soundness or to the Deposit Insurance Fund
that exist if an ILC is owned by a financial company or a commercial
company? In the interest of safety and soundness, should the FDIC consider
limiting ownership of ILCs to financial companies?

8. Is there a greater likelihood that conflicts of interest or tying
between an ILC, its parent, and affiliates will occur if the ILC parent is a
commercial company or a company not subject to some form of consolidated
Federal supervision? If so, please describe those conflicts of interest or
tying and indicate whether or to what extent such conflicts of interest or
tying are controllable under current laws and regulations. What regulatory
or supervisory steps can reduce or eliminate such risks? Does the FDIC have
authority to address such risks in acting on applications and notices? What
additional regulatory or supervisory authority would help reduce or
eliminate such risks?

9. Do ILCs owned by commercial entities have a competitive advantage over
other insured depository institutions? If so, what factors account for that
advantage? To what extent can or should the FDIC consider this competitive
environment in acting on applications and notices? Can those elements be
addressed through supervisory processes or regulatory authority? If so, how?

10. Are there potential public benefits when a bank is affiliated with a
commercial concern? Could those benefits include, for example, providing
greater access to banking services for consumers? To what extent can or
should the FDIC consider those benefits if they exist?

11. In addition to the information requested by the above questions, are
there other issues or facts that the FDIC should consider that might assist
the FDIC in determining whether statutory, regulatory, or policy changes
should be made in the FDICís oversight of ILCs?

12. Given that Congress has expressly excepted owners of ILCs from
consolidated bank holding company regulation under the Bank Holding Company
Act, what are the limits on the FDICís authority to impose such regulation
absent further Congressional action?